Interpac Business and Migration Solutions Melbourne Australia

(July.14)

Home prices are predicted to fall over the next 12 months after a sharp decline in the expected value of Victorian houses dragged the national forecast lower, says a new report.

The National Australia Bank residential property index, which predicts houses prices, rents and real estate market conditions over the coming year, said national home prices would drop by 1.4 per cent in the 12 months from June, reversing an earlier prediction that home values would rise 0.6 per cent in the 12 months from last March.

In New South Wales, the NAB index declined from 39 points in March to 18 points in June, making it the strongest state in the national market.

National house prices will slide over the 12 months from June, says a new survey.

For Victoria, however, the index plunged to minus 16 in the June quarter from a positive 23 point reading in the March quarter.

"There has also been a notable deterioration in house price expectations across the country since our last survey," said NAB chief economist Alan Oster.

The June quarter's expectations were pushed lower by Queensland, where respondents predicted a 2.3 per cent fall over the year, and Victoria, where they saw a 2.1 per cent slide.

But in sobering news for homeowners elsewhere, the survey predicted house prices would drop in all states except Western Australia, where values were forecast to rise by 0.2 per cent over the year. Homes in New South Wales would fall by a modest 0.7 per cent, while South Australian homes would lose 1.7 per cent.

After performing strongly in 2010 the Australian housing market shifted into a lower gear in 2011. Auction clearance rates have hovered in the 50 per cent range in New South Wales and Victoria, down from the highs of 80 per cent seen last year, and borrowers appeared to be less willing to take out large loans for fear of interest rates rising.

RP Data said in June that national home prices have slumped 2.7 per cent in the first five months of the year.

The survey, drawn from the opinions of real estate agents, managers, property developers, and other industry voices, said tighter lending criteria and higher interest rates were the two major burdens on the market in the June quarter.

"Housing affordability was also identified in the current survey as a 'significant' constraint and was viewed as being most problematic in Victoria and Western Australia," the report said.

"The sustainability of house price gains was also cited as a 'significant' concern, with these concerns highest in Western Australia and NSW."

In Queensland the index sank to minus 27 in June from minus 5 in March. In South Australia, the index moved from minus 8 to minus 6 in the same period, while in WA it remained in positive territory, moving from 12 in the March quarter to 5 in June.

The NAB survey also showed rental yields softening over the year, falling to 1.3 per cent in June from 1.7 per cent in March.